As regular readers of this blog know, I am not a fan of Chinese stocks. My usual reason for not liking them is that I rarely trust their numbers. I am even less likely to invest in Chinese stocks now.
I have two additional reasons for my increased pessimism regarding China stocks. The first is real estate and the second is loans.
The Sydney Morning Herald just did an article, entitled, “Bonds show 60% of Chinese companies dabble in property,” describing how about 60% of Chinese companies that sold bonds in the past six months admit that they invest in the property market. Of course nobody knows what percent of the 40% invest in real estate but have not come clean about that.One should assume that the numbers for China’s publicly traded companies (on all exchanges) are somewhat similar.
In addition to real estate investing, I have every reason to believe countless publicly traded Chinese companies are also in the business of engaging in grey market lending. Much grey market lending occurs when well funded/well connected companies borrow from China banks at low official interest rates and then, in turn, lend that money to mostly private Chinese companies at much higher interest rates. I strongly suspect that most publicly traded Chinese companies that have engaged in this practice did not list it on their books and/or that their shareholders have no idea the extent of this practice. What percent of Chinese public companies are lending money and how much are they lending? Who knows.
The problem with Chinese companies investing in real estate and in lending is two-fold. First off, both of these “industries” are volatile and not looking good for China right now. Second, how are you supposed to know in what you are investing? Is that low risk food company really so low risk if 30% of its business is tied up in real estate investing and lending? I truly hope that the extent of these “off book” businesses is low enough and stable enough not to crush a whole slew of Chinese companies’ stock prices, but the more I know, the happier I am to have stayed away from Chinese stocks.
What do you think?